Axio has evolved from being one of India’s early fintechs. Now, it needs to grow up

CapFloat or Capital Float, one of the first fintech non-banking finance companies (NBFCs) in India, has gone through multiple iterations since it started operations in 2014. Six months ago, it rebranded its three product offerings under the name of CapFloat, Walnut and Walnut 369 as Axio, in yet another move to sharpen its business strategy.

Axio is a fintech company that uses technology in its underwriting and risk management processes. The company has developed in-house models through which credit decisions are taken with minimal human intervention.

The company was founded by Sashank Rishyasringa and Gaurav Hinduja after they graduated from Stanford Graduate School of Business, a decade ago.

Originally, it started with a focus on the small and medium enterprise (SME) segment. It diversified into the consumer finance segment in 2018. For this, it partnered with ecommerce giant Amazon for an online checkout finance (Buy Now Pay Later or BNPL) product. As a part of its strategy to grow in the consumer finance industry, in September 2018, it also acquired a majority stake in Walnut (now Axio), a personal finance app available on Android and iOS and used for personal loans.

Since its inception, Axio has managed to bring on board a clutch of financial and strategic investors to its cap table. It has raised total capital of Rs 1,157 crore from marquee investors, such as Lightrock (holding nearly a fifth of the company), Elevation Capital, Sequoia Capital, Ribbit Capital, Amazon, Creation Investments and SOROS Economic Development Fund.

What Axio has been up to

The company changed its product strategy from a multiple product lender prior to 2018 to an SME and consumer finance lender in 2018 and 2019 and now entirely to a consumer finance lender. Axio has paused SME financing since the Covid-19 pandemic on account of the impact on the borrower cash flow.

In consumer financing, Axio primarily focuses on online checkout finance and personal loan, which is a cross-sell product. The company has disbursed Rs 2,033 crore to consumer finance borrowers in the first half of fiscal 2023 (Rs 2,071 crore in fiscal 2022), for which it has entered into partnerships with top names in ecommerce and payment processing firms like Amazon, MakeMyTrip and Razorpay, among others.

Traction in the consumer finance product has resulted in the product’s asset under management (AUM) increasing to Rs 1,006 crore as on September 30, 2022, from Rs 526 crore as on March 31, 2022. Within the consumer finance segment, personal loan AUM stood at Rs 341 crore as on September 30,2022 (Rs 100 crore as on March 31, 2022). Personal loan is one of the key focus areas for the company and as it is a high yielding product, it should support profitability for Axio in the future.

Axio says it lends small amounts to new customers, which also helps them create and build a good credit history. This allows them to cross the eligibility hump to borrow more in the future, if required. Moving beyond BNPL, the firm has also entered pure unsecured loans where it offers the more conventional personal loans for its customers with a good repayment history.

The firm has also seen uptake for its product outside the top cities. In fact, nearly two-thirds of its new borrowers are from outside the ten biggest cities.

Axio believes the number of India’s digital user population will triple to 300 million over the next two years, which opens up growth opportunities. The firm is also looking at product categories within the personal finance domain and it is joining hands with players in areas like health, education and travel, where consumers need to spend a higher sum.

The company plans to raise another round of capital next year and intends to have an asset-light model with a mix of on-book as well as off-book growth, which will be through co-lending partnerships, thereby reducing the requirement for growth capital. Axio already has a co-lending partnership and is in the process of entering into more partnerships.

Axio’s performance

The business had seen its customer base rise to 6 million by mid-2022 and was adding around 15,000 new borrowers a day. Its lending business had crossed an annualised rate of over Rs 5,000 crore with expectations of breaking through the Rs 7,500 crore mark soon.

The company did go through its ups and downs in terms of its AUM during the pandemic and even before at the onset of the pandemic and it continues to be in losses. Its AUM declined by a third for two straight years from Rs 1,404 crore in FY19. In FY22 it maintained the same level of AUM though this shot up in the first six months of FY23.

The drop in the AUM was due to the discontinuation of a few products and the management’s cautious stance on incremental disbursements. This affected the unit economics.

At a consolidated level, the company incurred a loss of Rs 128 crore on total income of Rs 110 crore in FY22 against losses of Rs 174 crore on total income of Rs 123 crore in FY21.

The company’s credit cost had moderated last financial year because of reversal of excess expected credit loss provisions but it has moved up this fiscal.

Overall, on-book gross non-performing assets (NPAs) increased to 3.5% as on September 30, 2022, from 3% as on March 31, 2022 and 3.4% as on March 31, 2021. The bad loans in the legacy SME loan book are much higher and that should moderate going forward. Within consumer finance, 90+ days past due of BNPL segment stood at 3.7% as on September 30,2022, more than thrice of the level last March, while that of personal loan was just 0.3% on the same date.

With the business model firmly anchored on consumer loans, the company faces two challenges. One, to make success of the personal loan business that it has identified as a sweet spot and, in the process, also fend off the growing competition in both the BNPL business and personal loan segments from new generation fintechs.